Why GlobalFoundries Stock Fell 14% Last Month

Shares of GlobalFoundries (NASDAQ: GFS) fell 13.8% in September 2024, according to data from S&P Global Market Intelligence. The chip sector as a whole took a haircut in the first week of September due to geopolitical and economy concerns. Most of the price drops had reversed into modest gains by the end of the month, but this semiconductor manufacturing specialist stayed down.

Why did this semiconductor-sector infrastructure player lag behind other stocks in the same industry? Let's take a look.

Why GlobalFoundries keeps sliding lower

This is not a new development for GlobalFoundries. In fact, investors are getting used to negative monthly returns in 2024. With nine months of market action in the books, six of them have showed GlobalFoundries returns in red ink. All told, the stock has slid 36% lower in 2024 while larger rival Taiwan Semiconductor Manufacturing posted a 73% price gain.

The core reason behind GlobalFoundries' droopy stock chart is simple. The company is not playing a large part in the ongoing artificial intelligence (AI) boom. Its most recent earnings report, earnings presentation, and earnings call didn't include the words "AI" or "artificial intelligence," even in passing. Instead, GlobalFoundries' clients mainly serve the smartphone, automotive, and Internet of Things (IoT) markets. These are generally healthy growth sectors, but their sales channels have been clogged with excess inventories in recent quarters.

As a result, GlobalFoundries is experiencing negative sales growth while Taiwan Semi (and the AI-driven chip sector) enjoys robust growth. GlobalFoundries offered no new signs of a different story in September, so the stock never bounced back from the early drop.

Things are looking up, but this is still a pricey stock

The semiconductor sector comes with cyclical tendencies and GlobalFoundries saw a downturn in the first half of 2024. Revenue is already bouncing back from trough levels, boosted by stronger demand from the automotive industry.

At the same time, investors should keep a close eye on the company's weaker gross margins. GlobalFoundries was always less profitable than its larger rival, from the top of the income statement to the very bottom. That burden only gets heavier in challenging market conditions, like the current bout of financial weakness.

The stock isn't exactly cheap despite the recent price drops. If you're looking for an affordable stock in the semiconductors infrastructure sector, I'd put a pin in this idea for later review and double down on more affordable ideas in this space.

Should you invest $1,000 in GlobalFoundries right now?

Before you buy stock in GlobalFoundries, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and GlobalFoundries wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $752,838!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.